Thursday, January 29, 2009

EINs and LLCs: Updated


Dear June,

Subject: "Payee" Name on Checks that are Written to Me?

I am an LLC operating as a sole proprietor in CO. The IRS does not require an EIN for my situation, so I have never used one. I have always instructed clients to write checks to my company name. Twice in the past year two clients received letters from the IRS. I haven't seen the letters, so I don't know the exact context, but the bottom-line is that my clients believed that if I wanted to continue to receive checks with my company as Payee, then I would have to provide them with an EIN.

For tax purposes, the IRS site clearly states that an EIN is not necessary for an LLC operating as a sole proprietorship.

For legal purposes, it's my understanding that you should always receive checks in your company name. So, how should a check be written?

A
dditional Information that May Be Relevant I like "clean" tracking, so I deposit the checks into a business account from which I also pay business expenses. When I want to pay myself, then I transfer funds from my business account to my personal account.

An EIN has seemed unnecessary, and it's never been a problem until this year. I loathe the idea of adding yet more numbers to my life. Is it feasible to continue avoiding an EIN

T
hank you in advance for your guidance!

Rose

P.S. I diligently searched your book (which I bought many years ago, and often refer to and recommend to others). Trust me, I'm not just flattering you; your book is great and I wonder when you will write an update. I also searched your blog. I'm confident that either (a) my question is not already answered on your blog, or (b) I don't know the right key words to use when searching the book's index or searching your site.


Dear Rose,

This is an update to an earlier post on EINs.

The IRS now says that an LLC must have its own EIN.

If at all possible get a copy of the letters your clients received from the IRS. You said the the clients "believe" they can't pay you unless you have an EIN. Well ... what's that really mean?

You are also correct that in order to maintain the protection of the LLC checks should be made out to the LLC. Whatever name your LLC is registered as, is the name the checks should be made out to. Be sure you have that name on invoices and business cards so that clients will have a reference.

If your clients plan to send you a 1099 at year-end they will also need your address and your EIN.

Thank you. I am so pleased that you use my book as a reference. That is what it is meant for! By he way, all the basic information and how-to instruction in Self-employed Tax Solutions, although written several years ago, still applies for 2008 tax returns and so far for 2009 as well. Specific numbers may have changed but method has not. For instance, although the per mile rate for auto deduction changes every year, or even every half year, the all-important simple method I explain for keeping mileage records and the deductions for auto expense have not changed.

Best,
June

7 comments:

Rose said...

Dear June -

Thank you for your earlier reply. I was unable to obtain copies of the IRS letters, but do have more to add to the story.

First, I do indeed have "LLC" on my business cards, web site, invoices, and all other collateral.

Second, the clients issued 1099s in my name, along with my social security number. Sometimes they included my company name on the 1099, and sometimes not.

My taxes were filed only with my name and social security number.

Despite the common thread of my name and social security numbe, the IRS had difficulty matching the 1099s to my 1040.

So ... in the future, all documents (1099s, checks written to me, and my 1040) need to be written as "Rose D.B.A. Company LLC." This will allow me to keep my legal status and assist the IRS in matching 1099s to 1040s.

Do you agree?

Rose

June Walker said...

Rose --

A 1040 is an individual's or married couple's tax return. So I think you got something a bit mixed up.

I will be doing a column on EINs in the near future.

-- June

Rose said...

Hi June -

No,no ... I'm not mixing up my 1099 with my 1040. I know the difference.

I think I'll ask the relevant clients one more time for a copy of the letters they received from the IRS, as this situation continues to annoy me ... you know one of life's irritants like a pebble in a shoe!

Rose

June Walker said...

Hello Rose,

Form 1040, is an individual's tax return. It is also used for joint filing by husband and wife. A Form 1040 is never filed for an LLC.

Certain forms within the 1040 may pertain to LLCs.

So, you definitely must get more info.

-- June

Rose said...

Hi June -

I'm a sole proprietor LLC, so I file a 1040 with a Schedule C for my business.

Are you saying that despite operating as a sole proprietorship, I need to file a different tax form; i.e., that I cannot simply use Schedule C?

(Please tell me it ain't so, Joe!)

Rose

June Walker said...

Hi Rose,

The 1040 would be filed with your name,e.g. Rose Smith, and your social security number.

The Schedule C that is part of the 1040 tax return would be filed as Rose Smith LLC with the LLC's federal ID number.

Got it?

Cheers,
June

Rose said...

Yes, indeedy; we are on the same page. My 1040s and Schedule Cs have always had the entries you describe.

Rose